Lawyer for startups: from education to consultancy
Focus on Business Lawyer support to startups
Interview with a business lawyer: how to help startups with education and consultancy
Let’s meet Daniele Costa, business Lawyer for startups
Interview with Daniele Costa, Lawyer and Founder of KBL Law Firm, who deals with Commercial and Corporate Law, M&A and Extraordinary Transactions, Issuance of Debt and Semi-Equity Financial Instruments, IT and New Technologies Law, Privacy Law and Data Protection, Intellectual property.
His Clients are Startups, SMEs and Investors operating mainly in the IT and New Technologies, Food, Fashion and Real Estate sectors.
Lecturer in Corporate and Commercial Law and Intellectual Property at the IED (European Institute of Design) in Rome and Mentor at the Founder Institute. AIJA member and Fellow at DPO Innovation. Founder and editor of the blog “Ius in Action”. He participates as a speaker at national conferences on the world of law and business.
Hi Daniele, you are a lawyer, so we would like you to tell us about your professional experience that led you to found KBL Law, when did you decide and why?
The idea was born in the fall of 2011, while I was preparing for the bar exam together with the future co-founder Roberto Alma. At the time, Roberto and I worked at other Law Firms, but, for different reasons, we understood that those experiences would not last long. We began, therefore, by creating a blog on the world of law, Ius in Action, but I must admit that the first little big breakthrough happened a few months later, by chance: Roberto took part in an innovation event and there he met our first Client. It was one of those companies that today we call Startups and which at the beginning of 2012 were still called Newco. This “fuse” made us understand that a new young, dynamic industry was emerging and that often operated outside the perimeter designed by the legislator, for which it needed specialized and ongoing consultancy. Paradoxically, the fact of being young and still little known was an advantage because our future Clients saw in us their “similar”, not only from a personal point of view, but also as a desire to grow and create something new.
KBL Law is one of the leading Law Firms in the panorama of Italian Startups, in which activities do you support them as lawyer?
KBL Law is able to assist Startups throughout their life cycle, from birth (preparation of shareholder agreements) to the drafting of commercial agreements (e.g., distribution contracts, software development agreements, licenses agreements etc.), up to the assistance in the so-called “extraordinary phases” in the life of a company (in the case of a Startup, the Investment Rounds, Work for Equity plans and Exits operations). In addition, we have gained a deep knowledge on some specialized subjects, such as intellectual property (e.g., in the field of trademarks), as well as on those subjects that I would define “cross”, such as Privacy and Cybersecurity, as well as IT Law and New Technologies, where IT skills must necessarily be associated with legal skills. From this point of view, the fact that Roberto, in addition to being a Lawyer, is also a software developer, undoubtedly constitutes a significant competitive advantage for us.
We know that you have extensive experience as lawyer in Extraordinary Transactions (Investment Rounds, Exits, etc.). What advice can you give to a Startup that is about to start raising capital or doing an Exit?
The first tip is to gain awareness. In the early years it often happened to assist Startups that had signed a Term Sheet or an investment agreement, without having understood the clauses well. I believe that this “information asymmetry” between Startups and Investors has caused damage to both parties, because when the same language is not spoken, misunderstandings are generated which inevitably led to a slowdown in the growth of the company. Awareness is acquired both with experience, but also and above all in the relationship with one’s Lawyers. I’ll explain. When taking a Round, the legal considerations must necessarily be coordinated with those of an entrepreneurial nature. The role of the Lawyer, therefore, is first of all to listen to the Startup, to then help it in its reasoning and choose the right tools each time to achieve the set goals.
The second and third advice I can give are related to negotiation. Before starting any negotiation, two principles must always be kept in mind: the principle of opportunity / necessity and the principle of priorities. The principle of opportunity / necessity indicates, in general, the degree of negotiability: if the Startup is in a phase in which it can choose whether or not to attract investments and from which Investor, the degree of negotiability will be greater (the investment is an opportunity); vice versa, in the event that the Startup no longer has “cash” (so-called running out of cash), then the degree of negotiability will be lower (the investment is a necessity). In any case, in all transactions there is always at least a minimum degree of negotiability. And here we come to the second point, the one related to priorities. To get the most out of a negotiation, you must always sit at the table having in mind what are the truly fundamental elements for us, and it is on those that you need to focus your attention. Also on this profile, the role of the Lawyer is (or at least should be) an active role, because it is easier than you can imagine, especially if you are not used to it, to be guided by instinct or emotion and negotiate clauses that then they turn out to be of little relevance to the life of the Startup.
We often hear about Work for Equity, but not all Startups know this tool well. Can you explain it to us?
The Work for Equity / Incentive Plans is a tool through which the Startup can remunerate, in whole or in part, its workforce (employees, directors, consultants) through financial instruments (generally the shares of the Startup). This generates a situation that I would define as “win-win”: the Startup, in fact, needs a workforce, often highly qualified, but does not have the economic resources to be able to hire it; those who work for the Startup, on the other hand, have the opportunity to acquire shares in a company with high growth potential (growth, to which, moreover, they can contribute with their work), as well as to exploit some tax benefits on the services provided. To make the best use of the potential of this tool, however, it is necessary to pay attention to some particularities (e.g., as regards the category of “employees”, the legislation provides that the worker must in any case receive the minimum wage provided for by the CCNL – contract national collective labour force, thus the Incentive Plan can only add to, but not completely replace, remuneration).
Moving on to another important topic for Startups, brands, where should you start from in your opinion?
The first key point is to understand why it is important to protect your brand.
The owner of a registered trademark has the possibility to exercise a series of rights (e.g., the right to exclusive use, i.e., the right to use the trademark to distinguish their products / services or to license it to third parties; right of reaction, i.e., the right to prevent unauthorized third parties from using a trademark identical or similar to ours, etc.). From a practical point of view, the first steps to take are: create the trademark, carry out anteriority searches (to check if there are identical or similar registered trademarks), choose the countries in which to register. On this last point, my advice is to register in the countries where the Startup operates or intends to operate in the near future. Some Startups would like to register the trademark immediately all over the world, but they are not always aware of the consequences that this choice entails. First of all, the more countries where the trademark is registered, the greater the chances that there are potential conflicting trademarks, so it is necessary to have time and economic resources to defend oneself in court. Furthermore, at least in Europe, if the trademark is not used for 5 years, it could expire for non-use, so registering in countries where you are not operating and do not intend to operate in the near future is a risky choice.
You are a lawyer specialized in IT and New Technologies Law, Privacy Law and Data Protection, all fundamental topics especially for digital Startups, what advice can give to Startup founders?
Since 2018 privacy has been on the agenda of all companies, from Startups to multinationals. What I notice is that companies, even those that work with personal data, often do not have perfect knowledge of all the processing operations they carry out and why they carry them out. It may seem paradoxical, but it is so. The first piece of advice I would like to give, therefore, is to carry out a small self-analysis test, which can be summarized in the set of questions who / how / where / when / why:
- Who processes the personal data owned by the Startup? Which employees? Which external suppliers?
- How are personal data processed? In other words, what processing operations are carried out?
- Where are personal data processed? Private or cloud servers? Are the servers located in EU or non-EU countries?
- When are personal data processed? And above all, how long is the personal data kept?
- Why are personal data processed? For what purposes (e.g., billing, marketing, etc.) does the Startup process personal data?
Already by answering these questions you can have a first picture of the situation from which anomalies, criticalities, and issues to work on will emerge (think of the case of a company where it emerges that the employees of the HR office also have access to folders containing customer personal data).
In general, in fact, it is necessary to point out that the processing of personal data is an activity that involves risks. What the legislation requires from companies is to adopt measures aimed at eliminating or, at least, mitigating these risks. To do this, however, the company must first have a clear picture of the incoming and outgoing data flows – so that it can accurately calculate the likelihood and severity of potential risks – and then make decisions, otherwise there is a risk of “driving with headlights off in the night” and, therefore, to take risk mitigation measures that will always be inadequate (because they are undersized or oversized with respect to the company’s business).
In addition to your professional activity, you also hold teaching and mentorship positions at training schools and acceleration programs. How do you help Startups on these occasions?
One of the activities we have been carrying out since our foundation is precisely that of training and mentorship. Generally, I am hired both on the business side and on the legal side: as regards the first point, often those who found a Startup are at their first entrepreneurial experience, so they need advice and feedback also on issues related to the business model and how approaching Investors. Not everyone, in fact, is aware of the way in which Investment Funds think and what are the aspects on which they focus their attention in the various stages of a Startup’s life (pre-seed, seed, early stage / venture capital, growth). From a legal point of view, however, I participate in conferences and webinars to try to explain, with an accessible language, some concepts that I believe an entrepreneur who wants to grow his business should know. To do this, I always try to use practical cases or examples taken from movies or news reports, so that the “lessons” are more interactive and characterized by a visual approach (people have greater ease in remembering concepts if they can connect them to situations that have “seen” or, at least, “imagined”).
About your activity as lawyer and mentor, we know that you have a YouTube channel in which you talk about the Investment Rounds, can you tell us something more about this initiative, when and why did you decide and how is it going?
Yes, the idea was born last spring when, due to Covid, it was no longer possible to organize physical events, although – I must admit – we had been thinking about it for some time. In fact, in recent years, we have noticed that, despite participating in various physical events, people continued to contact us asking the same information, especially with reference to the Investment Rounds, so we decided to collect all the material and questions received for create a cycle of videos on how the investment process in a Startup works, with the analysis of legal profiles (e.g., the analysis of documents, such as the Term Sheet or the Investment Agreement, or the analysis of the so-called “particular rights” granted to the Investor, such as Antidilution, Drag Along, Tag Along, Liquidation Preference etc.), but not only (e.g., what are the phases of the investment process? What is meant by Pre-Money Evaluation and Post-Money Evaluation and how is it calculated?). The idea was born to allow everyone to always have a mini guide available in which to find useful information to better understand what “doing a Round” means. I must say that, less than a year after the first video, we have achieved good results: between the You Tube channel and our social channels (Linkedin and Facebook), in fact, we got thousands of views. Given the positive feedback, we are thinking about the creation of other videos on topics of interest to our target audience (Startups, SMEs and Investors).
If you are interested in Business Lawyer, please read also the interview with Chiara D’Antò Lawyer supports startup founders during their journey ,the interview with Marco Corica Business lawyer helps companies and startups with his team and the interview with Fabio Azzolina Business lawyer on a legal design approach for startups